The Top 5 Political Stories of 2011: No. 2 The Argument Over Marcellus Shale.

Good Friday Morning, Fellow Seelers. We enter the final furlong of this week's countdown of 2011's top political stories with perhaps one of the most important policy issues facing lawmakers in recent memory.

Namely, how to regulate Pennsylvania's booming Marcellus shale natural gas industry and the now three-year-old (and still unsuccessful) effort to impose a tax or fee on the industry.

Like the debate over school choice, a settlement on Marcellus shale eluded lawmakers in 2011, perhaps jeopardizing chances for an agreement in 2012.

A closer look at the issue starts, as always, after the bills-paying "Read More" link below.

The past year's debate over shale really had two components -- taxation and regulation -- and we'll try to address each in turn.

First up, taxation.

More astute readers will recall that former Gov. Ed Rendell began pushing for a severance tax on the industry -- that is, a tax on the gas that's actually taken out of the ground -- in 2009. Republicans opposed the levy, arguing that it would drive drillers out of the state. Democrats pushed for one, arguing that the industry should pay for a resource it was taking out of the ground.

The chances for a gas tax pretty much evaporated with the election of Gov. Tom Corbett. The Republican opposes the tax and has said he'd veto one if it ever reached his desk. That opposition was reiterated when Lt. Gov. Jim Cawley, who chaired an administration advisory panel on the issue, said a tax would not be part of its deliberations.

While Corbett has been steadfast in his opposition to a tax, his position on an impact fee for the industry (ie: making it pay for the local and environmental impact of its activities) has steadily modulated his position.

In a March 2010 interview with KDKA-TV in Pittsburgh, then-candidate Corbett said a no-tax pledge he signed also applied to fee increases. By July 2010, however, Corbett was saying the pledge didn't include fees.

Corbett eventually embraced an impact fee proposal put forth by the Cawley-chaired advisory commission allowing counties to impose the fee. He defended it during a November 2011 appearance before the Pennsylvania Press Club, arguing that it would help communities deal with local costs of gas exploration. During that appearance, Corbett also said the fee didn't break the no-tax pledge he signed as a candidate.

What will the committee have to settle?How about, oh, say, everything? Lawmakers still haven't agreed on how much the fee should be. Nor have they reached an agreement on who (the state or county governments) should impose it.

The House: The House plan adopts fee language that Corbett introduced in October. It imposes a per-well fee, imposed on the county level, that starts at $40,000 and then drops to $10,000 per-well over the levy's 10-year lifespan. The House version of the fee dedicates 75 percent of the revenue to local governments and sends the balance to the state. The Corbett plan is based on recommendations put together by the administration's Marcellus Shale Advisory Commission. Environmentalists have said the fee proposal doesn't go far enough.

The Senate: The Senate plan, sponsored by Senate President Pro Tempore Joe Scarnati, R-Jefferson, has gone through several versions since it was first introduced in April. But the measure passed by the Senate creates a 20-year fee, imposed at the state level, starting at $50,000 per-well. It would give counties and municipalities 55 percent of the fee revenue, StateImpact Pennsylvania reported.

And that's as good a place as any to look at some of the regulatory discussion, since the debate over the fee also takes in environmental and other issues.

Both the House and Senate plans give the state Attorney General's Office the ability to rule whether local drilling ordinances are "reasonable." The AG's office can also bring suit against local ordinances in Commonwealth Court.

The debate over what's known as "preemption" is one the key issues in the discussion over Marcellus shale. And it's an area of significant disagreement between lawmakers, drillers and the administration.

Also still under discussion are what's known as "setbacks" or the distance that a well can be placed from water supplies and bodies of water.

The bill approved by the Senate would increase setback distances from a shale well and an existing water well from 200 to 500 feet; increase the setback between a well and spring or body of water identified on a topographic map from 100 feet to 300 feet; and it would restrict a well from being located within 1,000 feet of a public water supply, the Times-Tribune of Scranton reported.

The Senate-passed distances are in line with the recommendations of the administration's shale advisory commission, the newspaper reported.

The House-approved bill would keep a gas well 300 feet away from any stream, spring or body of water and 1,000 feet from private wells and public water supplies, the Times-Tribune reported.

While lawmakers are hoping for a resolution of all these issues come the New Year, one senior legislator said an agreement could be complicated if the debate drags into 2012. That's because it could be overshadowed by debate over the 2012-13 state budget.